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Also, along the way, you may delve into rental property, and eventually even larger projects such as apartments or commercial property. In today's uncertain real estate market, holding properties as rentals, will provide a sure source of steady income and may net you significant gains on the sale of these properties in the not-too-distant future.
Here's another convenient worksheet - one to use when analyzing the benefits of rental property. We've included some examples for you:
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ROI Analysis on
Rental Homes
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4 BR/2BA |
3BR/2BA |
3BR/2BA |
3BR/1BA |
3BR/1BA |
2BR/1BA |
2BR/1BA |
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(leveraged) |
(leveraged) |
(cash purchase) |
(leveraged) |
(cash purchase) |
(leveraged) |
(cash purchase) |
| Average purchase price per home: |
$ 110,000.00 |
$ 100,000.00 |
$ 100,000.00 |
$ 90,000.00 |
$ 90,000.00 |
$ 80,000.00 |
$ 80,000.00 |
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Closing Costs |
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$ 3,500.00 |
$ 3,250.00 |
$ 1,100.00 |
$ 3,000.00 |
$ 1,000.00 |
$ 2,500.00 |
$ 900.00 |
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$ 113,500.00 |
$ 103,250.00 |
$ 101,100.00 |
$ 93,000.00 |
$ 91,000.00 |
$ 82,500.00 |
$ 80,900.00 |
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Mortgage factor: 80% of purch.price |
0.80 |
0.80 |
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0.80 |
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0.80 |
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Less Mortgage Loan |
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$ 90,800.00 |
$ 82,600.00 |
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$ 74,400.00 |
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$ 66,000.00 |
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Cash investment |
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$ 22,700.00 |
$ 20,650.00 |
$ 101,100.00 |
$ 18,600.00 |
$ 91,000.00 |
$ 16,500.00 |
$ 80,900.00 |
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| Potential Monthly Gross Income |
$ 1,500.00 |
$ 1,350.00 |
$ 1,350.00 |
$ 1,200.00 |
$ 1,200.00 |
$ 950.00 |
$ 950.00 |
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Less 10% Vacancy Factor |
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0.90 |
0.90 |
0.90 |
0.90 |
0.90 |
0.90 |
0.90 |
| Effective Gross Income |
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$ 1,350.00 |
$ 1,215.00 |
$ 1,215.00 |
$ 1,080.00 |
$ 1,080.00 |
$ 855.00 |
$ 855.00 |
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| Approximate cash expenses-monthly: |
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Average property taxes |
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$ (175.00) |
$ (150.00) |
$ (150.00) |
$ (125.00) |
$ (125.00) |
$ (95.00) |
$ (95.00) |
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Insurance |
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$ (50.00) |
$ (45.00) |
$ (45.00) |
$ (40.00) |
$ (40.00) |
$ (35.00) |
$ (35.00) |
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Management Fee: 8% of effective rent |
$ (108.00) |
$ (97.00) |
$ (97.00) |
$ (86.00) |
$ (86.00) |
$ (68.00) |
$ (68.00) |
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Repairs & Maint. |
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$ (75.00) |
$ (70.00) |
$ (70.00) |
$ (60.00) |
$ (60.00) |
$ (50.00) |
$ (50.00) |
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Reserve for Replacements |
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$ (75.00) |
$ (70.00) |
$ (70.00) |
$ (65.00) |
$ (65.00) |
$ (60.00) |
$ (60.00) |
| Net Operating Income (NOI) |
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$ 867.00 |
$ 783.00 |
$ 783.00 |
$ 704.00 |
$ 704.00 |
$ 547.00 |
$ 547.00 |
| Debt Service (Interest Only) @ 6% rate |
$ (454.00) |
$ (413.00) |
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$ (372.00) |
$ - |
$ (330.00) |
$ - |
| Before-tax Cash Flow |
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$ 413.00 |
$ 370.00 |
$ 783.00 |
$ 332.00 |
$ 704.00 |
$ 217.00 |
$ 547.00 |
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| Computing Taxes |
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NOI |
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$ 867.00 |
$ 778.00 |
$ 778.00 |
$ 704.00 |
$ 704.00 |
$ 547.00 |
$ 547.00 |
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Add Reserves |
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$ 75.00 |
$ 70.00 |
$ 70.00 |
$ 65.00 |
$ 65.00 |
$ 60.00 |
$ 60.00 |
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Subtract Monthly Interest |
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$ (454.00) |
$ (413.00) |
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$ (372.00) |
$ - |
$ (330.00) |
$ - |
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Depreciation (Purch. price÷330 mo.) |
$ (333.00) |
$ (303.00) |
$ (303.00) |
$ (273.00) |
$ (273.00) |
$ (242.00) |
$ (242.00) |
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Unadjusted Taxable Income |
$ 155.00 |
$ 132.00 |
$ 545.00 |
$ 124.00 |
$ 496.00 |
$ 35.00 |
$ 365.00 |
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| Compute After-Tax Cash Flow |
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| Pre-Tax Cash Flow (NOI+reserves-mtg.pmt.) |
$ 488.00 |
$ 435.00 |
$ 848.00 |
$ 397.00 |
$ 769.00 |
$ 277.00 |
$ 607.00 |
| Less income tax (assumed 20% rate) |
0.80 |
0.80 |
0.80 |
0.80 |
0.80 |
0.80 |
0.80 |
| After-Tax Cash Flow per Month |
$ 390.40 |
$ 348.00 |
$ 678.40 |
$ 317.60 |
$ 615.20 |
$ 221.60 |
$ 485.60 |
| Months per year |
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12 |
12 |
12 |
12 |
12 |
12 |
12 |
| Annual After-Tax Cash Flow |
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$ 4,684.80 |
$ 4,176.00 |
$ 8,140.80 |
$ 3,811.20 |
$ 7,382.40 |
$ 2,659.20 |
$ 5,827.20 |
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| Compute After-Tax Return on Investment |
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| Annual After-Tax Cash Flow ÷ Cash Invested |
20.64% |
20.22% |
8.05% |
20.49% |
8.11% |
16.12% |
7.20% |
| Average annual appreciation (estimate) |
4.00% |
4.00% |
4.00% |
3.00% |
3.00% |
2.00% |
2.00% |
| Anticipated annualized return |
24.64% |
24.22% |
12.05% |
23.49% |
11.11% |
18.12% |
9.20% |
Now, why don't you fill in the blanks for your own proposed rental scenario?
At EquityMax, we have the expertise to introduce you to all of these areas.
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